How subscription model is a test of loyalty for companies like Netflix, Hotstar

The model, once restricted to a few products, is now being used for a range of offerings.G Seetharaman | ET Bureau | November 20, 2018, 11:00 IST

(Thinkstock Photos)

Harsha Annadurai does not like pirated content. It is no surprise, then, that he is a big fan of video and audio streaming services. So much so that the 23-year-old is a subscriber to Netflix, Hotstar, Amazon Prime and Apple Music.

That may seem like a lot of subscriptions but it is not. Just ask around and you will find more people with as many or even more media subscriptions. What’s more, streaming platforms, or media broadly, are not the only services Indians are subscribing to these days. Annadurai, for instance, paid Rs 1,899 in February for an annual subscription to Zomato Gold.

With this, he could get two drinks free on an order of as many drinks or 1+1 on food at select restaurants. “I’m pretty sure I saved that money in the first two months,” says Annadurai, who works for a Bengaluru-based marketing software startup. Zomato Gold is available in 20 cities and has over 6 lakh subscribers.

In the pre-internet age, subscriptions were largely limited to newspapers and magazines. But now, besides the likes of Netflix and Zomato Gold, you can subscribe to a range of products and services — from artisanal coffee to cosmetics, cold-pressed juice to cars.

While there is no data available on the overall subscription market in India, since it is in its early stages, it is clear that more and more brands want in on it, helped in no small measure by the wide variety of payment options. It is a true test of consumer loyalty, especially monthly subscriptions. If the subscriber does not see value in it, she is not going to renew it, which means brands have to constantly measure up to expectations.

Video and audio streaming services have to be credited with getting Indians comfortable with subscription. Revenues from subscription to streaming platforms are set to grow five times, from Rs 390 crore in 2017 to Rs 2,100 crore in 2020, according to a report by Ficci, an industry body, and EY, a consultancy.

In 2017, there were 87.6 million music streaming users, more than a third of whom were subscribers, according to the Ficci-EY report, and 27.1 million video streaming users in India, according to Statista. It is not clear how many video subscribers there are in all. But according to IHS Markit, a market research firm, Netflix had 5.2 lakh subscribers in India at 2017-end, and Amazon had 6.1 lakh. Hotstar has 1.6 million, according to the Financial Times. Netflix is the priciest of all three, with its monthly subscriptions ranging from Rs 499 to Rs 799.

Amazon and Hotstar charge Rs 129 and Rs 199 a month, respectively, and Rs 999 for an annual subscription. An Amazon Prime subscription includes faster delivery and its video and audio streaming services.

Subscribing to all these may not really come cheap but people like Annadurai find a way around it by sharing it with friends and family. Annadurai shares his Netflix subscription with three friends and has opted for the six-member family plan of Apple Music, at Rs 199/month. A recent survey of over 1,800 video streaming subscribers in India by Pixights, a research and consultancy firm, found that 80% of them share their subscription.

If streaming services are in some sense an extension of cable TV, then gyms have given way to niche fitness centres and apps. Cult, cofounded by Mukesh Bansal of Myntra fame, offers subscriptions ranging from Rs 14,990 for 3 months to Rs 36,990 a year to its fitness centres. GoQii, which competes with Cult for your fitness budget, bundles plans with its wearable device, starting at Rs 1,999 for 3 months and going up to Rs 5,999 for 12 months. A fitness coach stays in touch with the subscriber through the GoQii app.

Vishal Gondal, founder and CEO of GoQii, says 70% of its subscribers stay on after the first three months. He adds that GoQii has under 5 lakh subscribers. Gondal founded Indiagames in the late 1990s. Apeksha Savkur, a 32-year-old halfmarathon runner in Mumbai, got a GoQii band as a gift from her husband a year ago. After the initial subscription ended, she renewed it. “It’s quite reasonably priced compared with Apple and Garmin and you have a coach who keeps an eye on your activites.” Savkur also subscribes to Saavn and Amazon Prime.

But subscriptions can sometimes be tricky, as Zomato recently found out. First Zomato changed its rules to require a minimum of two diners to use one Zomato Gold subscription and four diners to use two subscriptions and so on, then it said Zomato Gold would not be applicable on November 6 and 7 due to Diwali, prompting a lot of angry tweets from subscribers. “Every company has fine print. But there is a limit to which you can exercise it,” says Annadurai. A Zomato spokesperson says the changes were made after “carefully analysing the usage patterns and noticing that it did not affect 98.65% of our membership base.”

Another service subscription in India is Ola Select, which insulates users from surge pricing and offers Wi-Fi, priority booking and higher-end cabs at lower prices. Ola Select starts at Rs 1,299 a month. Ola also provides Ola Share Pass, which, at Rs 39-129/month, caps prices of shared rides up to a particular distance. Uber also has Ride Pass which does the same for individual rides.

Questions sent to Ola remained unanswered and Uber said it does not disclose subscriber numbers outside the US. Unlike video on demand, paid subscriptions to news websites, made popular globally by the Financial Times, The Wall Street Journal, The New York Times and The Economist, are still not common in India (The Economic Times offers ET Prime, a subscription-based premium digital service).

Mailed BoxWhile a lot of Indians, or at least those in cities, are familiar with subscribing to services, product subscriptions are still a relatively new phenomenon here. Popularised in the US by the Dollar Shave Club, which initially mailed cheap razors and then other shaving products to its customers, subscription boxes have become a big market there.

According to McKinsey, US subscription e-commerce revenues rose from a mere $57 million in 2011 to $2.6 billion in 2017. Half the online buyers McKinsey surveyed earlier this year had subscribed to a product or service in the previous 12 months. While 46% of the respondents had a media subscription, only 15% had bought a subscription box.

Besides the Dollar Shave Club, which was acquired by Unilever for $1 billion in 2016, meal-kit company Blue Apron and beauty products e-retailers Ipsy and Birchbox are among the popular names in the subscription box category. The most popular subscription service in e-commerce is Amazon Subscribe & Save, according to McKinsey. Etailers rely on artificial intelligence to curate their subscription boxes.

“The basic appeal of the subscription model for consumers is that the product is turned into a service, for which they pay a small fee albeit on a recurring basis, and they have control to cancel it at any time,” says Jay I Sinha, associate professor of marketing at Temple University.

In India, the model is being tried across a range of products, including beverages. “Tea and coffee is a lot about discovery. Subscription gives you the option to try different varieties in the comfort of your home,” says Kausshal Dugarr, founder of Teabox, a seller of over 250 different teas, mostly online. Teabox curates a subscription box containing five different teas of 30 g each.

The monthly plan costs Rs 999. While an element of surprise is central to the Teabox offering, other companies like The Flying Squirrel and Blue Tokai, which sell coffee, let you choose what you want in your subscription box. “Subscription does not give consumers a price advantage, it’s more to do with convenience,” says Ashish D’Abreo, cofounder of The Flying Squirrel. Among other drinks available on subscription are Raw Pressery’s coldpressed juices and Sarda Farms’ preservativefree farm-to-home milk.

Surprise or not, getting someone to pay repeatedly for a subscription is a huge ask, says Kaushik Mukherjee, cofounder of Fab Bag, which delivers curated boxes with beauty products. Fab Bag, founded in 2012, has 15,000 subscribers and gets 90% of its business from subscription. “Beauty product subscriptions are more of discovery than replenishment,” adds Mukherjee. Beyond eyeliner and oolong tea, you can even subscribe to a car under a subscription plan offered by Zoomcar, a self-driving car rental service.

The subscription plan lets you use a car for anywhere between six and 36 months without a down payment. The plan allows you to reduce your monthly outgo by putting your car on the Zoomcar platform for others to rent. For instance, the company says you could get a car for Rs 2,999-15,499/a month for a 36-month subscription when the car is shared with others on the platform for 20 days a month.

Zoomcar guarantees rental earnings of Rs 10,000 if the car is available for 20 days a month, including all weekends. “Our ultimate objective is to eliminate the conventional concept of ownership,” says Greg Moran, cofounder and CEO, Zoomcar. The company is adding 1,000 subscribers a month, which he says should at least double in the January-March quarter.

There is no doubt that here is now a variety of things to subscribe to. But while the subscription model has proved to be the de facto source of revenue, besides advertising, in streaming globally and India could follow the trend, it may not be so straightforward with subscription boxes, which may not yet prove to be compelling to a large consumer base.